The UK firm has been under pressure from shareholders to make use of some of its GBP6 billion reserve fund. The company hopes that the acquisition will improve its services in content, delivery and managed Internet hosting.
C&W is offering $3.40 in cash for each share in Digital Island, 8.7% premium above the closing price of $3.13.
Last week Digital Island announced a second quarter loss of $1.19 billion after writing off more than $1 billion in assets.
The deal is expected to accelerate value by medium term through improved revenue growth.
C&W chief executive Graham Wallace said in a press statement: The proposed acquisition of Digital Island accelerates the implementation of Cable & Wireless’ global IP and data strategy in the key area of value added services.
The combined company will be able to offer a comprehensive range of IP/data transport, hosting, content delivery and other value added services to business customers in the US, Europe and Japan, Mr Wallace concluded.
